What is Composition Scheme?

Composition scheme under the law is for small businesses. This is to bring relief to small businesses so that they need not be burdened with the compliance provisions under the law. Thus, an option has been provided where they can opt to pay a fixed percentage of turnovers as GST and be relieved from the detailed compliance of the provisions of law.

Who can opt for Composition Scheme?

Earlier under GST law, Composition Scheme was only available on supply of goods. However through notification no.2/2019 dated 7th March 2019 composition scheme is also made available for supply of services. As per this notification, any registered person making first supplies of goods or services or both up to an aggregate turnover of Rs.50 Lakhs on or after 1st April in any financial year, may opt to pay tax at the rate of 6%.(3% CGST & 3% SGST)

First supplies includes the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the said Act but for the purpose of determination of tax payable under this notification it shall not include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the Act.

This rate is applicable on all supplies made by the service provider irrespective of the fact whether they are exempt supplies or are taxed at different rate.

Who cannot opt for Composition Scheme?

The suppliers whose aggregate turnover in the preceding financial year was above Rs. 50 lakhs.

The suppliers are eligible to pay tax under composition scheme of sub-section (1) of section 10 of CGST ACT.

Suppliers engaged in business of ice cream, pan masala, tobacco and tobacco substitutes.

The supplier engaged in the business of making any supplies on which GST is not leviable under this Act (i.e., petro products or alcoholic liquor].

A supplier making inter-state supplies.

A casual taxable person or a non-resident taxable person.

Businesses which supply goods through an e-commerce operator on which TCS applies.

Conditions to be comply for availing Composition Scheme? 

The registered person shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to avail/claim any credit of input tax.

The registered person shall issue, instead of tax invoice, a bill of supply.

The registered person shall mention the following words at the top of the bill of supply, namely: -`taxable person paying tax in terms of notification No. 2/2019-Central Tax (Rate) dated 07.03.2019, not eligible to collect tax on applies’.

The taxpayer has to pay tax at normal rates for transactions under the Reverse Charge Mechanism.

If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.

APMH COMMENT 

This is good initiative by the Government, this will certainly help small tax payers who has turnover of Rs. 50 Lac or Less. Only word of caution is that such persons/tax payers cannot claim input tax credit, which otherwise available to them on their inward supplies. New returns are already proposed by GSTN but it seems, Composition dealers will continue to file CMP-08.

Please feel free to write to us on info@apmh.in / pratik@apmh.in for any further queries on the above blog.